Lam puts up solid, in line, QTR & guide
Outlook 2018 solid growth vs 2017 crazy growth
Tax rate and repatriation means flush with cash
View attachment 21072
Lam put up revenues of $2.58B versus expectation of $2.57B, in other words more or less in line. Earnings were reported at $4.34 but after you back out the tax benefits the quarter was 10 cents above guide of $3.40...in other words $3.50 compared to analyst expectations of $3.68. So a slight miss but the headline says beat. March guide is for revenues of $3.175B +- 125M and EPS of $4.35+- .15 versus current street of $2.64B and $3.7. So guidance is strong helped out by a new tax model. Memory was a staggering 77% of business, with NAND leading the charge. Overall a very solid start to 2018
Slowing from "ludicrous" to solid growth in 2018?
Back in the beginning of 2017, nobody, including Lam management (admitted on the call) expected the company to see a 50% growth rate in 2017. The most impressive thing in 2017 was that Lam was able to keep up without the wheels coming off. There was likely some fraying around the edges and we are sure the supply chain had a significant stress test but it was well worth it. The initial take on the growth rate for 2017 looks to be in the teens which most any company would be very happy with. Memory will continue to be the main driver throughout the year.
Memory is scary big at 77% of business
Memory (Samsung) has remained far and away the biggest driver of constantly increasing business. NAND remains the bigger of the two which is also no big surprise. Given the historical volatility of memory spending it remains both scary and intoxicating at the same time. While memory demand is far less cyclical than all history it doesn't mean it will last forever but enjoy it while its there as you are not going to turn down business.
The stocks that cried Wolf???
The stocks obviously had a very significant pull back not all that long ago based upon just the fear, not the actuality, of memory concerns and we are now back to pre-pullback values. The question is will stocks at this level hold, test again or break through? Its hard to say but management did its part to assuage investor fears of memory driving off a cliff without skid marks by saying that memory growth will continue throughout 2018. We tend to agree but would not feel safe enough to unbuckle our seatbelt just yet.
Share of the pie increases
Lam talked about a 2% increase in Lam's percentage of WFE in 2017. We agree, but its not all share gain versus AMAT & TEL and others. It remains primarily a gain at the expense of litho spend from both lower litho multi level NAND and multipatterning step offsets, so it primarily coming out of ASML's hide in 2017. We don't think that will continue quite as much going in to 2018 as EUV ramps, and example of which we saw in ASML's recent report.
Tax Gifts= New "cash flow" story
The tax reform frees up close to $5B of cash out of which will come $1B to pay newly reduced taxes. Management made no commitments as to how thats going to get used or returned but we would wager the company will fill us in on their March 6th analyst meeting. Given the likely like of large M&A targets or other ways to burn money we are going to likely see Lam turn into a "cash flow" story, much as KLA had been and what we are seeing with DOW components like Boeing. Investors are going to like the new model going forward. The cash is not a question of if but when and how much.
KLA Questions
We think an interesting question coming out of the Lam call is what KLA will say tomorrow. Given KLA is not as memory centric as Lam, we could run the risk of KLA being light as Lam's foundry/logic business was not exciting and KLA is primarily foundry/logic. KLA has done better in memory of late, but not as strong as Lam. We don't think we would buy KLA ahead of the call.
The Stock
While everything was very solid, it wasn't a barn burner that most of 2017 was. Going from 50% growth in 2017 to teens in 2018 is a very soft slow down but investors are clearly sensitized to the memory bogeyman. We are still an owner of Lam but would not be surprised to see a softness Thursday as investors digest the news.We would be a buyer on any significant softness as we think the long term cash reward that has been added to the story makes Lam an even better investment going forward.
About Semiconductor Advisors LLC
Semiconductor Advisors provides this subscription based research newsletter, Semiwatch, about the semiconductor and semiconductor equipment industries. We also provide custom research and expert consulting services for both investors and industry participants on a wide range of topics from financial to technology and tactical to strategic projects. Please contact us for these services as well as for a subscription to Semiwatch.
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Outlook 2018 solid growth vs 2017 crazy growth
Tax rate and repatriation means flush with cash
View attachment 21072
Lam put up revenues of $2.58B versus expectation of $2.57B, in other words more or less in line. Earnings were reported at $4.34 but after you back out the tax benefits the quarter was 10 cents above guide of $3.40...in other words $3.50 compared to analyst expectations of $3.68. So a slight miss but the headline says beat. March guide is for revenues of $3.175B +- 125M and EPS of $4.35+- .15 versus current street of $2.64B and $3.7. So guidance is strong helped out by a new tax model. Memory was a staggering 77% of business, with NAND leading the charge. Overall a very solid start to 2018
Slowing from "ludicrous" to solid growth in 2018?
Back in the beginning of 2017, nobody, including Lam management (admitted on the call) expected the company to see a 50% growth rate in 2017. The most impressive thing in 2017 was that Lam was able to keep up without the wheels coming off. There was likely some fraying around the edges and we are sure the supply chain had a significant stress test but it was well worth it. The initial take on the growth rate for 2017 looks to be in the teens which most any company would be very happy with. Memory will continue to be the main driver throughout the year.
Memory is scary big at 77% of business
Memory (Samsung) has remained far and away the biggest driver of constantly increasing business. NAND remains the bigger of the two which is also no big surprise. Given the historical volatility of memory spending it remains both scary and intoxicating at the same time. While memory demand is far less cyclical than all history it doesn't mean it will last forever but enjoy it while its there as you are not going to turn down business.
The stocks that cried Wolf???
The stocks obviously had a very significant pull back not all that long ago based upon just the fear, not the actuality, of memory concerns and we are now back to pre-pullback values. The question is will stocks at this level hold, test again or break through? Its hard to say but management did its part to assuage investor fears of memory driving off a cliff without skid marks by saying that memory growth will continue throughout 2018. We tend to agree but would not feel safe enough to unbuckle our seatbelt just yet.
Share of the pie increases
Lam talked about a 2% increase in Lam's percentage of WFE in 2017. We agree, but its not all share gain versus AMAT & TEL and others. It remains primarily a gain at the expense of litho spend from both lower litho multi level NAND and multipatterning step offsets, so it primarily coming out of ASML's hide in 2017. We don't think that will continue quite as much going in to 2018 as EUV ramps, and example of which we saw in ASML's recent report.
Tax Gifts= New "cash flow" story
The tax reform frees up close to $5B of cash out of which will come $1B to pay newly reduced taxes. Management made no commitments as to how thats going to get used or returned but we would wager the company will fill us in on their March 6th analyst meeting. Given the likely like of large M&A targets or other ways to burn money we are going to likely see Lam turn into a "cash flow" story, much as KLA had been and what we are seeing with DOW components like Boeing. Investors are going to like the new model going forward. The cash is not a question of if but when and how much.
KLA Questions
We think an interesting question coming out of the Lam call is what KLA will say tomorrow. Given KLA is not as memory centric as Lam, we could run the risk of KLA being light as Lam's foundry/logic business was not exciting and KLA is primarily foundry/logic. KLA has done better in memory of late, but not as strong as Lam. We don't think we would buy KLA ahead of the call.
The Stock
While everything was very solid, it wasn't a barn burner that most of 2017 was. Going from 50% growth in 2017 to teens in 2018 is a very soft slow down but investors are clearly sensitized to the memory bogeyman. We are still an owner of Lam but would not be surprised to see a softness Thursday as investors digest the news.We would be a buyer on any significant softness as we think the long term cash reward that has been added to the story makes Lam an even better investment going forward.
About Semiconductor Advisors LLC
Semiconductor Advisors provides this subscription based research newsletter, Semiwatch, about the semiconductor and semiconductor equipment industries. We also provide custom research and expert consulting services for both investors and industry participants on a wide range of topics from financial to technology and tactical to strategic projects. Please contact us for these services as well as for a subscription to Semiwatch.
[table] border="0" style="margin: 0px; color: rgb(51, 51, 51); border-collapse: collapse; border-spacing: 0px; background-color: rgb(49, 148, 214)"
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